Caps pakistan economy may 6, 2014

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Observations on Pakistan Economy by Mohan Guruswamy

Observations on Pakistan Economy by Mohan Guruswamy

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  • 1. THE GROWING SOCIO- ECONOMIC CRISIS. MOHAN GURUSWAMY DISTINGUISHED FELLOW OBSERVER RESEARCH FOUNDATION Pakistan: On the Road to Perdition. September 6, 2012Mohan Guruswamy ORF 1
  • 2. September 6, 2012Mohan Guruswamy ORF 2 Political/topographical map of Pakistan.
  • 3. September 6, 2012Mohan Guruswamy ORF 3 Quick comparison of India and neighbors.
  • 4. Economic growth in South Asia (2001-11). September 6, 2012Mohan Guruswamy ORF 4
  • 5. Snapshot of our old friend, the enemy. September 6, 2012Mohan Guruswamy ORF 5
  • 6. September 6, 2012Mohan Guruswamy ORF 6 Pakistan has been ranked among bottom 20 of the 144 economies around the world in The Global Competitiveness Report 2012-2013, released Wednesday by the World Economic Forum. According to the Global Competitiveness Report (GCR) 2012-13, Pakistan lacks a long-term view of competitiveness. The level of corruption and poor governance are some of the factors slowing down Pakistan’s economic growth, therefore ranking Pakistan at 124 among 144 other countries on the index.
  • 7. India/Pakistan GDP trends 1960-2008. September 6, 2012Mohan Guruswamy ORF 7
  • 8. India/Pakistan growth rates 1960-2008 September 6, 2012Mohan Guruswamy ORF 8
  • 9. India, Pakistan GDP growth 2002-11.(%) September 6, 2012Mohan Guruswamy ORF 9
  • 10. Pakistan’s GDP Growth Rate 2010-2013. September 6, 2012Mohan Guruswamy ORF 10
  • 11. Pakistan’s GDP growth by sector. September 6, 2012Mohan Guruswamy ORF 11
  • 12. India & Pakistan - Exports of goods and services (% of GDP) September 6, 2012Mohan Guruswamy ORF 12
  • 13. Pakistan’s dwindling Tax/GDP Ratio. September 6, 2012Mohan Guruswamy ORF 13
  • 14. Pakistan’s Federal Board of Revenue tax collection. September 6, 2012Mohan Guruswamy ORF 14
  • 15. Untaxed “shadow” economy share in GDP. (%) September 6, 2012Mohan Guruswamy ORF 15
  • 16. Tax/GDP ratios of Top 10 & Pakistan’s. September 6, 2012Mohan Guruswamy ORF 16 USA 28.2 China 17.0 Japan 27.4 India 17.7 Germany 40.6 UK 39.0 Russia 36.9 France 46.1 Brazil 36.8 Italy 42.6 Pakistan 10.6
  • 17. “Much of Pakistan’s capital city looks like a rich Los Angeles suburb. Shiny sport utility vehicles purr down gated driveways. Elegant multistory homes are tended by servants. Laundry is never hung out to dry. “Taxes are the Achilles’ heel of Pakistani politicians,” said Jahangir Tareen, a businessman and member of Parliament who is trying to put taxes on the public agenda. He paid $225,534 in income tax in 2009, a figure he made public in Parliament last month. “If you don’t have income, fine, but then don’t go and get into a Land Cruiser.” Out of more than 170 million Pakistanis, fewer than 2 percent pay income tax, making Pakistan’s revenue from taxes among the lowest in the world, a notch below Sierra Leone’s as a ratio of tax to gross domestic product.” From report by Sabrina Tavernise in The New York Times of July 16,2010 Tax-free prosperity! September 6, 2012Mohan Guruswamy ORF 17
  • 18. “Yet Pakistan’s fiscal troubles are antediluvian. It is one of the most lightly taxed countries in the world. Fewer than a quarter of the country’s firms declare any taxable revenues, and only 11 out of every 1,000 of its citizens pay tax on their incomes, according to the World Bank. As a result, tax revenues amount to a mere 10% of Pakistan’s GDP.” The Economist, January 11, 2011. http://www.economist.com/node/17913440 Free for all economy! September 6, 2012Mohan Guruswamy ORF 18
  • 19. A survey, carried out by a reputed Lahore-based academic institution a few years back, as a part of tax reformation drive, concluded that mainly because of rampant corruption, in combination with a host of other factors, the country suffers a loss of 64 percent in income tax, 48 percent in customs, and 45 percent in sales tax . Translated into hard cash, it means that for each hundred rupees of genuine income tax payments of a typical Pakistani business, the government collects only Rs 36. The rest of the money is shared among the three parties - assessors (taxmen), the assesses (taxpayers) and the middlemen (tax practitioners). Cost of walking out in the green channel. September 6, 2012Mohan Guruswamy ORF 19
  • 20. Dr Aqdas Ali Kazmi* in his paper ‘Tax Policy and Resource Mobilization in Pakistan’ estimates 70 percent part of economy consists of 36 percent pure black economy, 18 percent exempted economy, 9 percent illegal economy, 4.5 percent unrecorded economy, and 2.5 percent informal or unreported economy. *Dr. Aqdas Ali Kazmi former Joint Chief Economist (Macro), Planning & Development Division, Government of Pakistan, Islamabad. Black and bleak economy. September 6, 2012Mohan Guruswamy ORF 20
  • 21. According to a US State Department report, released in 2006, the Gini Coefficient for Pakistan is 68.0. According to the same report, the 'Gini Index' for Japan is 14.9, for Sweden is 21.0, for Switzerland is 21.1, for Germany is 22.3, for the United Kingdom is 23.0, for Canada is 23.1, for France is 32.7, for Iran is 41.0, for the United States is 46.6, for Argentina is 52.2, for Mexico is 54.6, for South Africa is 57.8 and for Namibia is 70.7. According to an United Nations report, from 1987 to 1999, the Gini Coefficient for Pakistan was in the range of 0.33 to 0.43, but it increased to 0.68 in 2006. Comparative Income Inequality. Gini out of the bottle. September 6, 2012Mohan Guruswamy ORF 21
  • 22. September 6, 2012Mohan Guruswamy ORF 22 India & Pakistan Gross Savings /GDP. (%)
  • 23. India & Pakistan Gross Capital Formation (GCF)/ GDP (%) September 6, 2012Mohan Guruswamy ORF 23
  • 24. Net official development assistance and official aid received (current US$) September 6, 2012Mohan Guruswamy ORF 24
  • 25. September 6, 2012Mohan Guruswamy ORF 25 Living on the dole.
  • 26. India & Pakistan - Foreign Direct Investment ($). September 6, 2012Mohan Guruswamy ORF 26
  • 27. Dwindling Investment/GDP Ratio. September 6, 2012Mohan Guruswamy ORF 27
  • 28. Country Investment as % GDP China 42.60 India 33.70 South Korea 28.20 France 20.80 Japan 20.20 Russia 20.00 European Union 19.70 Italy 19.20 Germany 18.90 Pakistan 18.10 Brazil 17.00 United Kingdom 15.00 United States 12.50 September 6, 2012Mohan Guruswamy ORF 28 Some Investment/GDP ratios.
  • 29. IMF’s Pakistan GDP Projections (in US$ Billions)   GDP for Pakistan in year 2015 246.234   GDP for Pakistan in year 2014 228.874   GDP for Pakistan in year 2013 213.795   GDP for Pakistan in year 2012 200.803   GDP for Pakistan in year 2011 189.971   GDP for Pakistan in year 2010 177.901       GDP for Pakistan in year 2009 166.515 September 6, 2012Mohan Guruswamy ORF 29
  • 30. Drowned in gloom! September 6, 2012Mohan Guruswamy ORF 30
  • 31. Take for example the high population growth of Pakistan. In contrast to  neighboring Iran and Bangladesh, Pakistan has been unable to get its total  fertility rate or TFR below 4.116. Some Pakistanis may be rationalizing a failure at a critical aspect of  development (reducing the rate of population growth) into a positive  advantage (leaving Pakistan with a larger potential work force). It is equally plausible that Pakistan’s current high TFR (and high population  growth rate of 2.7%) will perpetuate the youth bulge generation after  generation, overwhelming the state’s capacity to deliver education, health care  and jobs to an ever-expanding pool of young people. How will Pakistan be able to supply the classrooms and qualified teachers for this burgeoning generation, let alone future ones? Demographic time bomb. Tick, tick, tick.  September 6, 2012Mohan Guruswamy ORF 31
  • 32. Troubles ahead with troubled youth. September 6, 2012Mohan Guruswamy ORF 32
  • 33. India & Pakistan - Population ages 15-64 (% of total) September 6, 2012Mohan Guruswamy ORF 33
  • 34. Demographic Highlights Population Living in Urban Areas of 750,000+, 2005 (%) 18 Population Living in Urban Areas of 750,000+, 2005 31,795,000 Youth Ages 10-24, 2006 54,200,000 Youth Ages 10-24, 2025 64,800,000 Ever-Married Females Ages 15-19 (%) 21 Population Mid-2009 180,808,000 Birth Rate (annual number of births per 1,000 total population) 30 Death Rate (annual number of deaths per 1,000 total population) 7 Rate of Natural Incr. (birth rate minus death rate, expressed as a %) 2.3 Population Mid-2025 (projected) 246,286,000 Population Mid-2050 (projected) 335,195,000 Population Change 2009-2050 (projected %) 85 Only one thing is for sure - lots more Pakistanis to contend with. September 6, 2012Mohan Guruswamy ORF 34
  • 35. September 6, 2012Mohan Guruswamy ORF 35 Countries with the largest increases and decline of  populations in this century, millions.
  • 36. September 6, 2012Mohan Guruswamy ORF 36 The 20 largest countries in 2050, millions.
  • 37. Current account (US$ m) 2005 2006 2007 2008 2009 2010 2011 Trade balance -6,340 -9,647 -10,587 -16,769 -10,372 -13,318 -14,149 Goods: exports fob 15,433 17,049 18,188 21.328 18,285 18,330 18,494 Goods: imports fob -21,773-26,696 -28,775 -38,097 28,657 -31,649 -32,643 Services balance -3,830 -4,912 -5,044 -5,363 -3,021 -3,199 -3,568 Income balance -2,514 -3,131 -3,740 -4,294 -1,681 -3,652 -3,702 Current transfers balance 9,079 10,941 11,085 11,024 12,668 14,664 15,273 Current-account balance -3,605 -6,750 -8,286 -15,402 -2,406 -5,505 -6,146 September 6, 2012Mohan Guruswamy ORF 37 Getting deeper into debt.
  • 38. Collateral Damage. Growing criminal economy. According to an official of the UN Office on Drugs and  Crime ( UNODC), Afghanistan produces 355 metric tons  of heroin every year, about 90 percent of the whole  world's production. And 42 percent of the heroin  production of Afghanistan passes through different  routes from Pakistan. Talking to Xinhua, National Research Development  Program Officer at the UNODC, Sher Ali Arbab, said that  150 metric tons of heroin come to Pakistan every year,  out of which 80 metric tons are consumed in Pakistan,  and 70 metric tons are smuggled outside. He said it is  impossible to seal the 2,500km-long porous border that  Pakistan shares with Afghanistan, to curb drug  trafficking and other smuggling. September 6, 2012Mohan Guruswamy ORF 38
  • 39. India’s and Pakistan’s Military Expenditures. September 6, 2012Mohan Guruswamy ORF 39
  • 40. September 6, 2012Mohan Guruswamy ORF 40 Nuclear weapons neither ensure security, nor do they consolidate political power; rather they are a threat to both security and political power. The events that took place in the 1990s showed that the possession of such weapons could not even safeguard a regime like the former Soviet Union. And today we see certain countries, which are exposed to waves of deadly insecurity despite possessing atomic bombs. ... Ayatollah Khamenei.
  • 41. September 6, 2012Mohan Guruswamy ORF 41
  • 42. Regional Income Inequality.
  • 43. Water scenario India. September 6, 2012Mohan Guruswamy ORF 43
  • 44. Water scenario Pakistan. September 6, 2012Mohan Guruswamy ORF 44
  • 45. Water dependence Indus River basin is the main irrigation source. 106 MAF. 80% is utilized in Punjab. The big land holdings are situated close to canals and water sources. The small holdings are mostly fed by the capillaries. Blame it on India. 45 September 6, 2012Mohan Guruswamy ORF
  • 46. Who has got the water. September 6, 2012Mohan Guruswamy ORF 46
  • 47. The basis of Pakistan’s inequality. September 6, 2012Mohan Guruswamy ORF 47
  • 48. Ethnic divisions of Pakistan. September 6, 201248Mohan Guruswamy ORF
  • 49. September 6, 2012Mohan Guruswamy ORF 49 Zindagi Ek Sulagti Si Chita Hai Saahir ! Shola Banti Hai, Na, Yeh Bujh Ke Dhuvaan Hoti Hai
  • 50. THANK YOU! Waqt ney kiya kya hasin sitam. Tum na rahe tum aur hum na rahe hum! Mohan Guruswamy ORF September 6, 2012 50
  • 51. India/Pakistan military expenditures as % of GDP 1988-2008. September 6, 2012Mohan Guruswamy ORF 51
  • 52. India/Pakistan Military Expenditure % Budget. September 6, 2012Mohan Guruswamy ORF 52
  • 53. 2001 2002 2003 2004 2005 2006 2007 2008 2009 India 22.64 22.57 23.07 26.77 28.30 28.47 28.87 32.33 36.60 Pakistan 4.20 4.51 4.81 5.02 5.21 5.27 5.28 4.88 4.82 India/Pakistan Military expenditures this decade in $bn. September 6, 2012Mohan Guruswamy ORF 53
  • 54. India & Pakistan Military Expenditure/ GDP (%). September 6, 2012Mohan Guruswamy ORF 54
  • 55. What do ordinary Pakistanis think about their future? September 6, 2012Mohan Guruswamy ORF 55